"Financial Planning ... it's not always about money."

How Investors Are Messing Up Right Now, According to Finance Pros

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
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If the S&P 500’s performance since this spring is any guide, the market’s funk is over: The index is up about 16% since mid-March. That means investing has gotten easier, right? Actually every market environment includes plenty of rakes for investors to step on. And you can be sure that is what is happening right now. Financial advisors have a front-row seat for investor mistakes, because they often have to talk new clients out of bad ideas. So for this week’s Barron’s Advisor Big Q, we asked advisors: “What mistakes do you see investors making right now?”


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Jimmy Chang, chief investment officer, Rockefeller Global Family Office: It feels like investors have grown too complacent about the macro environment and are underpricing potential risks ahead. I think they have bid valuations up to fairly expensive levels in equities. And when you look at non-investment-grade or high-yield spreads, they’re too narrow. So I don’t think investors are properly pricing the potential risks.

I actually think a soft economic landing in the context of full employment is a very difficult environment to navigate, because both inflation and recession risks will remain. On one hand, inflation could easily make a comeback if the job market remains very tight and the government continues to pump stimulus into the economy. And if the Fed eases off too early you could see inflation come back. On the other hand, we could argue that in this environment the Fed will keep interest rates higher for longer, and that means the overtightening risk would remain.

So for investors, I think some conservatism is warranted. Even if we wind up with a soft landing, it is still probably going to be somewhat choppy in the months ahead. Historically, September and the first half of October tend to be pretty choppy periods. And we now have the resumption of student debt payments starting in the fourth quarter, so that potentially could affect consumer spending.

Nicole Webb, financial advisor, Wealth Enhancement Group: The No. 1 thing that I wrote down was that investors are staying pretty short in their duration. We’ve seen a lot of cash being held in money markets, and money markets are incredibly attractive, near 5%. But money markets aren’t guaranteed to pay that rate for any period of time. I think it’s important for people to think about how far out on that duration spectrum they can go and start laddering investments like Treasuries. The other mistake that I see people making is not understanding the cap weighting or the structure of investing in the S&P 500. People are putting most of their dollar into the most highly appreciated companies that are included in the S&P, companies that are trading right now at 40-times multiples. I think there’s room in everyone’s portfolio for investing in megatechnology companies. But trees don’t grow to the sky.

James Sahagian, managing director and wealth advisor, Ramapo Wealth Advisors (Steward Partners): I think the biggest mistake most investors are making is the same one they always make, which is following the crowd. This has been probably the narrowest market I’ve seen in my 24-year career. A small handful of stocks are dominating all the attention. They’re great companies and terrific investments over the long term, but the valuations are far less attractive than they were just seven months ago. When the market was bottoming in October to December of last year, a lot of these stocks were down 50%, 60%, 70%. Now, with the frenzy over AI, they have been bid up to very high valuations. And I think a lot of very attractive opportunities are being overlooked, both in fixed income and in equity. In particular, tax-free municipal bonds as well as taxable preferred stocks look very attractive based on historical valuations.

Ken Van Leeuwen, managing director, Van Leeuwen & Co.: Everybody is clamoring for something in fixed interest, whether it be a fixed annuity, a CD, or a Treasury. They want to earn between 4% and 5%, and they’re very happy with that, especially after last year. To me, when everybody wants to de-risk, that’s a telltale sign that the market’s going to go up in their face. And that’s what’s been happening. When fixed-annuity sales are setting records, you should be very concerned.

Investors should always stay on the plan that they set up with their advisors. They should have goals that they’re looking to attain, and they should understand that getting too conservative doesn’t work. That’s a classic mistake that people are making right now. They want to grab that yield, because they haven’t seen good yields for so long. But if they stay with what they’re doing, they’re going to miss out on some really good portfolio results. Yes, you’ve got to suffer your lumps, like in 2022. But clients of ours this year are up between 12% and 15% in their accounts. We work hard at keeping them focused on what their goals are. Investors will rationalize, “Well, fixed income is not risky.” Well, what do you want to do, be comfortable now or run out of money when you’re 80 years old?

John LeRoy, founder, private wealth advisor, LeRoy Wealth Management Group (Summit Financial): The overarching mistake I see right now is that people are just accumulating cash—in money-market CDs for example—as an excessive portion of their portfolios. They’re using cash as a long-term investment category because it’s paying anywhere between 4% and 5%, when realistically it’s always been a short-term solution. Relative to inflation and taxes, cash is really just a push from an investment standpoint. In the past five rate-hike cycles, we’ve seen core bonds and even short-term bonds have done anywhere from 25% to 100% more in return than cash.

As far as stocks, it’s an extremely concentrated market, with five to seven stocks representing about 70% of the return of the S&P 500. Chasing them can be challenging. And as a result of people accumulating cash, they’re waiting for that perfect moment to invest in the market. But it’s very difficult to know when that entry period is. My recommendation would be to continue to average into equity and fixed-income markets in alignment with a long-term allocation.

Write to advisor.editors@barrons.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting